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AmerisourceBergen (ABC) Hits 52-Week High: What's Driving It?

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Shares of AmerisourceBergen Corporation (ABC - Free Report) scaled a new 52-week high of $167.92 on Nov 25, before closing the session marginally lower at $167.70.

Over the past year, this Zacks Rank #3 (Hold) stock has gained 39.5% against 8.9% decline of the industry and the S&P 500 composite’s fall of 15.1%.

Over the past five years, the company registered earnings growth of 12.9% compared with the industry’s 11.9% rise. The company’s long-term expected growth rate of 8.2% compares with the industry’s growth projection of 9.5%. AmerisourceBergen’s earnings surpassed the Zacks Consensus Estimate in three of the trailing four quarters and missed the same in the other one, the average surprise being 2.5%.

AmerisourceBergen is witnessing an upward trend in its stock price, prompted by its robust World Courier business. The optimism led by solid fourth-quarter fiscal 2022 performance and strength in its U.S. healthcare solutions business are expected to contribute further. However, stiff competition and headwinds from contract renewals persist.

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Let’s delve deeper.

Key Growth Drivers

Strength in World Courier Business: Investors are upbeat about World Courier’s solid foothold in global specialty logistics services, which has been driving compelling volume growth and overall performance for ABC. The business has been delivering robust results in recent times and the fiscal fourth quarter of 2022 was not an exception.

World Courier’s robust business fundamentals position it for another year of strong growth. Going forward, World Courier is expected to continue to design and deploy patient-centric and forward-thinking transport services in new areas like in-home clinical trials, making treatments in patients’ homes possible in virtually every therapeutic area.

Strength in U.S. Healthcare Solutions Business: Investors are optimistic about the segment deriving benefits from increasing volume and an expanding customer base. In fiscal fourth-quarter 2022, this segment reflected a strong year-over-year revenue uptick on the back of an increase in specialty product sales coupled with overall market growth.

Improvement in year-over-year segmental operating income was also impressive. Higher gross profit contributed to the upside.

Strong Q4 Results: AmerisourceBergen’s robust fourth-quarter fiscal 2022 results buoy optimism. The company’s robust segmental performance in the quarter is encouraging. AmerisourceBergen’s introduction of AB Health Ventures — a dedicated corporate venture capital fund — focused on investing in and collaborating with emerging healthcare startup companies that are involved in transforming healthcare for people and animals worldwide deserves mention. The expansion of both margins bodes well.

Downsides

Contract Renewals a Headwind: The company’s largest customer, Walgreens, accounted for a significant proportion of total revenues. The loss of any major customer will adversely impact the top line. AmerisourceBergen extended its 10-year pharmaceutical distribution agreement with Walgreens Boot Alliance for three years. The contract will now expire in 2026. Hence, the possibility of a headwind in the near term remains.

Stiff Competition: AmerisourceBergen operates in a highly competitive pharmaceutical distribution and related healthcare services market. The company’s primary competitors are key MedTech players, along with national generic distributors and regional distributors. The company faces additional competition from manufacturers, chain drugstores, specialty distributors, and packaging and healthcare technology companies.

Key Picks

Some better-ranked stocks in the broader medical space are AMN Healthcare Services, Inc. (AMN - Free Report) , ShockWave Medical, Inc. (SWAV - Free Report) and McKesson Corporation (MCK - Free Report) .

AMN Healthcare, carrying a Zacks Rank #2 (Buy) at present, has an estimated long-term growth rate of 3.3%. AMN’s earnings surpassed the Zacks Consensus Estimate in all the trailing four quarters, the average beat being 10.9%.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

AMN Healthcare has gained 5.9% against the industry’s 31.2% decline in the past year.

ShockWave Medical, carrying a Zacks Rank #2 at present, has an estimated growth rate of 23.6% for 2023. SWAV’s earnings surpassed estimates in all the trailing four quarters, the average beat being 146.1%.

ShockWave Medical has gained 45.4% against the industry’s 25.2% decline over the past year.

McKesson, carrying a Zacks Rank #2 at present, has an estimated long-term growth rate of 10.1%. MCK’s earnings surpassed estimates in two of the trailing four quarters and missed the same in the other two, the average beat being 4.8%.

McKesson has gained 71.7% against the industry’s 8.9% decline over the past year.

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